Finra consolidates enforcement program in hopes of delivering consistency, transparency

Regulator says move will ensure unified approach in charging, sanctions

Jul 26, 2018 @ 2:21 pm

By Mark Schoeff Jr.

The Financial Industry Regulatory Authority Inc. on Thursday completed a major overhaul of its enforcement programs that is intended to shine more light on how the Wall Street regulator decides actions and penalties involving brokers and their firms.

Finra's enforcement department is now streamlined under Susan Schroeder, executive vice president and head of enforcement. She will lead one enforcement team that will make decisions on investigations and penalties.

Previously, there were two enforcement units. One handled disciplinary matters involving trading and the other dealt with cases referred by other Finra divisions.

The consolidation process began in July 2017, when Ms. Schroeder was promoted to her current position. She now has sub-teams reporting to her on investigations, main enforcement, market regulation and sales practices, as well as the office of the counsel.

The goal of the integration is to make enforcement more predictable.

"Finra member firms should see consistency and transparency in enforcement actions," Ms. Schroeder said. "Our priority is to bring impactful and foreseeable enforcement actions."

The regulator said the changes were inspired by Finra 360, the organization's self-examination initiative that was launched last year. As part of that process, Finra chief executive Robert W. Cook heard complaints from member firms about overlapping enforcement efforts and varying penalties for similar violations.

"In the long-term, they might see greater consistency between investigative methods and charging and sanctioning decisions across all parts of the department," said Daniel Nathan, partner at law firm Orrick and former Finra vice president and director of regional enforcement.

The new enforcement structure also might make investigations more efficient, according to Brian Rubin, partner at Eversheds Sutherland. Sometimes a case can drag on for two or three years.

"It's frustrating for member firms and individuals to have an enforcement investigation hang over their heads for a long period of time," said Mr. Rubin, former deputy chief counsel of Finra enforcement.

Another sore point for Finra firms is when two cases focused on the same violations result in vastly different penalties and remediation.

"Hopefully in the future we won't see that as much," Mr. Rubin said.

Finra wants to remove ambiguity surrounding consequences for violating its rules.

"Making sure that sanction is foreseeable is an important part of our mission," Ms. Schroeder said.

Another thing that may become more predictable under streamlined Finra enforcement is the amount of credit Finra gives firms for cooperating with an investigation, according to Emily Gordy, partner at McGuireWoods.

"It's an art, not a science," said Ms. Gordy, former Finra senior vice president of enforcement. "Having that kind of centralized oversight and dialogue will ensure there is more consistent transparency and judgment."

That's what Stephen Wilkes, partner at Wagner Law Group, is hoping will be the general theme in Finra enforcement following consolidation.

"The industry should expect more consistent processes, procedures and enforcement results," he said.


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